* European shares edge up, on track for 6th straight monthly
* U.S. stocks expected to add to recent gains
* Euro firms as euro zone borrowing costs ease
* India Q3 GDP slightly below forecast, China data eyed
By Richard Hubbard
LONDON, Nov 30 Concern about the stalemate in
crucial U.S. budget talks slowed gains in world equity markets
on Friday, while the euro neared a one-month high on better
demand for European peripheral debt.
Markets are on edge over the lack of progress in talks to
close the budget gap in Washington, where a deal is needed by
year-end or automatic spending cuts and tax rises will be
triggered that would tip the U.S. economy into a recession.
The MSCI world equity index edged up 0.1
percent to near its highest level for November at 332.7 points,
having added almost 1 percent on Thursday when a deal appeared
close. U.S. stock index futures pointed to slightly better
opening on Wall Street.
The so called 'fiscal cliff' is the last big stumbling block
to what many forecast could be major rally in riskier assets
such as equities next year as the easier monetary policies of
world's major central banks take hold.
"For the next 12 months I think the markets are going up,"
said Marino Valensise, chief investment officer at Baring Asset
"All the liquidity creation, quantitative easing, lending to
the banks of Europe, all this is conducive of a much better
market environment for riskier assets. So we could potentially
see quite a substantial rally."
But before being comfortable in moving back into the market,
most investors want to see a deal in Washington where the latest
announcements have been less than hopeful.
On Thursday the leading Republican politician, House of
Representatives Speaker John Boehner, said there had been no
substantive progress in talks with the White House, dampening
hopes for an early deal less than 24 hours after he said he was
"optimistic" about reaching a pact.
The comments haven't changed expectations a deal would
eventually emerge, enabling equity markets to keep edging up.
"The markets are obviously getting a bit more sanguine about
(the fiscal cliff) day by day," said Andrew Milligan, head of
global strategy at Standard Life Investments. "That may just be
the calm before the storm, but the impression I get is that
people think, yes, they will sort it out eventually."
The FTSEurofirst 300 index of top European shares
rose 0.25 percent to 1,124.70 points by midday, adding to
Thursday 1.1 percent gains which took it to a four-month closing
London's FTSE 100, Paris's CAC-40 and
Frankfurt's DAX were between 0.2 to 0.4 percent firmer.
Earlier MSCI's broadest index of Asia-Pacific shares outside
Japan rose 0.6 percent to be at its highest
level since March 1, after a monthly gain of 2.1 percent.
EUROPEAN FEARS SOOTHED
European shares are on course for their best month since
August and a sixth straight monthly gain as sentiment over the
outlook for Europe has also improved since a deal was reached on
aid to Greece earlier this week.
Those signs have also helped euro, which was up 0.2 percent
against the dollar to $1.30 and at a seven-month high
against the yen of 107.55 yen.
Strong demand at an Italian bond auction this week, which cut
Rome's borrowing costs to a two-year low, and falls in Spanish
bond yields have encouraged investors back into European assets.
Spanish and Italian 10-year bond yields were stable on
Friday at 5.36 percent and 4.54 percent
respectively, and well below their peak in July
when's Spain's debt yielded more than six percent.
Along with hopes for a U.S. budget deal and the better
outlook for Europe's debt crisis, investors were also taking
heart from better data on industrial activity for both South
Korea and Japan.
Japan, the world's third-largest economy, reported that its
industrial output unexpectedly rose 1.8 percent in October, the
first increase in four months. Although a separate survey showed
manufacturing activity contracting in November at the fastest
pace in 19 months.
In South Korea, another big export-reliant economy,
industrial output grew for a second month in a row in October,
backing expectations for a recovery in the current quarter.
While in Asia's third largest economy, India, the economy
grew at a slightly lower-than-expected annual rate of 5.3
percent in the quarter ending in September though this is still
well above many other major economies.
On Saturday, China will release the official manufacturing
PMI for November, which is likely to show factory activity
expanding at its fastest pace in seven months.
The data had little impact on world oil markets where the
U.S. fiscal crisis remains in centre stage due to its potential
impact on demand from the world's biggest consumer.
Brent crude was steady at $110.80 a barrel, while
U.S. crude was also barely changed at $88.12 a barrel.
"No significant progress seems to have been made in the U.S.
budgetary dispute, which has led to profit-taking, especially
since oil is trading at the upper end of its trading corridor,"
said Commerzbank oil analyst Carsten Fritsch.
Gold rose 0.6 percent to $1,730.50 an ounce although
prices were on track for their biggest weekly drop this month on
all the uncertainty over the U.S. budget talks.